Household spending too weak to help – just like 1929

The problem went far beyond mortgages and opportunists. Greed almost stopped the American economy. Too many unemployed, too many reduced credit limits, and too many homeowners are upside down in the value of their homes.

Total U.S. consumer credit fell by a record $21.6 billion in July, Federal Reserve data showed on Tuesday, the latest hint household spending would be too weak to drive the economy’s recovery from recession.

July consumer credit outstanding fell at a 10.4 percent annual rate to $2.47 trillion, steeper than analysts’ expectations for a $4.0 billion drop. Total credit in June tumbled $15.5 billion rather than the $10.3 billion drop previously estimated by the U.S. central bank.

“It is one more important sign that consumers are not going to be contributing very much to the economy for the balance of this year and probably for a good part of next year. Consumers will be in the background,” said Bernard Baumohl, chief global economist at The Economic Outlook Group in Princeton, New Jersey.

Consumer credit has now declined for six consecutive months, the first time this has happened since the period from June 1991 to December 1991, the Fed said.